Regional leaders have been trying to persuade Mr Jammeh to hand over power to Adama Barrow, who defeated him in December’s elections.
The move comes after Nigeria deployed a warship to further pressure Mr Jammeh.
Regional bloc ECOWAS has prepared a force but maintains that military intervention would be a last resort.
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The exact terms of the state of emergency remain unknown, as no details were provided with the announcement.
Mr Barrow is meant to be inaugurated as the new president on Thursday.
BBC